Trade Execution & Risk Management

This article is the metaphorical money-shot of my site. It provides examples of how to Enter & Exit trades & how to manage your Risk. For this article, I’m showing the charts first followed by information about them. Please checkout my other articles in the Tutorial menu if you need more information about the tools etc. that I have drawn on these charts.

Chart #1

Chart #2

Chart #1: This is what a fully planned out trade looks like. You should never enter a trade without knowing exactly what you are going to do and when you are going to do it. Being a successful Trader is a mechanical process that requires consistency of execution. The Risk/Reward Ratio tool is indicating an R/R of 2.09. This is a good setup.

Chart #2: We can see that there’s an excessive amount of Short positions on the Bitfinex exchange at the same time that the Bitcoin Price is quietly Consolidating in a known region of Key Support. This is observable evidence that the probabilities are now stacked in favor of a bullish resolution of this consolidation box resting at Key Support. Checkout my articles about Institutional Order Flow in the Tutorials Menu.

Trade Execution

This is an example of how you could use this trade setup, the example Profit Targets & Stop Loss prices are on Chart #1. In this example trade, when the market is in Consolidation, like in the blue box I’ve drawn on Chart #1, we would enter a Limit Buy Order at $6,200. We would get filled at this price. The perfect time to enter a trade is during a quiet period of extended consolidation, when the volatility is relatively low. Here’s what this would look like on the BitMEX exchange.

As soon as we’ve placed our Limit Buy Order, we would then place our Stop Market Sell Order which would act as our Stop Loss Order on the BitMEX exchange.

When our Limit Buy Order & Stop Market Sell Order have been entered we should then wait for our Limit Buy Order to be filled.

When it’s filled, we can then enter some additional Stop Market Sell Orders which will act as our Take Profit Orders. These Orders will automatically sell off our Position if the market rises and reaches our Profit Targets. We could e.g. Take Profit in 3 chunks as shown in Chart #1. by entering 3x Stop Market Sell Orders like this:

Stop Market Sell Order 1. Quantity: 3,333: Stop Price: $6,358 – Closes 33% of our position.
Stop Market Sell Order 2. Quantity: 3,333: Stop Price: $6,538 – Closes 33% of our position.
Stop Market Sell Order 3. Quantity: 3,334: Stop Price: $6,830 – Closes the last 33% of our position.

If the market reaches our 1st target of $6,358, we should then take our risk off of the table by editing our Stop Market Sell Order that’s at $5,900 by changing it to $6,200 which is where we entered our Long position at. At this stage we have made some profit, we have zero risk left in the market and we are still exposed to making additional profits with the remaining 66% of our original position that we still have open in the market. Pretty cool right?

If the market reaches our 2nd target at $6,538 we have the option of moving our Stop Market Sell Order that’s at $6,200 up to the price of our 1st target $6,358. We now have 33% left of our position in the market. If the market were to drop down to $6,358 without first hitting our 3rd & final target at $6,830 the remaining 33% of our position would be stopped out in profit.

Risk Management & Position Sizing

We should never risk more than 2% of our portfolio on a single trade due to the potential of having a losing streak that could wipe out our entire account. Certainty doesn’t exist in financial markets and having lots of losing trades is an inevitability. The goal is to have a record of more winning trades than losing trades overall over an extended period of time. Never get emotionally attached to a trade. Even the best, richest traders that ever lived have experienced losing streaks due to the laws of randomness, however this didn’t matter to them because out of e.g. 100 trades, they would always win at least 50 of them or at least the trades that they did win, their wins were so big that they out sized all of the losses that they had due to having a proper risk reward ratio on each and every trade that they made.